What is Covered Call?
Selling a call option while owning the underlying shares.
📖 Complete Definition
A covered call is a strategy where you own 100 shares of stock and sell a call option against it. This generates premium income but caps your upside at the strike price. It's popular for generating income on existing holdings and is considered relatively conservative. If the stock rises above the strike, you may have shares called away.
💡 Examples
- →Own 100 shares of AAPL at $175, sell a $180 call for $3.50 premium ($350)
- →Max profit: $350 premium + $500 appreciation = $850 if called away at $180
❓ Frequently Asked Questions
What strike should I choose for covered calls?
Choose a strike you'd be comfortable selling shares at. Further OTM strikes have lower premium but less chance of assignment. ATM strikes maximize premium but likely get called away.
What happens if my covered call is assigned?
You'll sell your 100 shares at the strike price. You keep the premium collected plus any appreciation up to the strike. This is often a profitable outcome.
🔗 Related Terms
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